Extendible Bond

An extendible or extendable bond is a bond which gives its holder the option of extending the bond term. Depending on the terms of the contract, the option to extend the bond might be given to the bond’s issuer, the bond’s holder, or both.

Example: An investor buys 5000 Swiss francs of extendable bonds issued by a mid-sized company which have a fixed interest rate of 1% per annum and a 5-year term. At the end of the 5-year term, the investor decides to extend the term for another 5 years because the 1% interest which they earn on the bond is higher than the interest offered by other fixed-interest investments at the time.

Example 2: A company issues extendable bonds with an interest rate of 1% per annum and a 5-year term. It sells these bonds to investors in order to raise capital. At the end of the 5-year term, the company decides to extend the term of its bonds for another 5 years because the interest which it pays is low compared to going rates at the time.

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